[News] U.S. Moves to Block AI Chip Exports to Overseas Chinese Units as Loophole May Have Fueled Large Shipments

The U.S. has moved to halt shipments of advanced AI chips to Chinese firms operating outside China. According to Reuters, the Department of Commerce’s Bureau of Industry and Security (BIS) on Sunday moved to close a loophole that may have allowed companies to export the world’s most advanced chips, such as NVIDIA’s Blackwell processors, to overseas subsidiaries of Chinese firms.

As highlighted by Digital Today, BIS is focusing on top-tier processors, citing NVIDIA’s Rubin and Blackwell lines and AMD’s MI350X accelerator as representative examples. The agency said the U.S. aims to prevent NVIDIA and AMD’s most advanced AI chips from reaching Chinese subsidiaries located outside China.

The unexpected guidance suggests that the most advanced U.S. AI chips may have been reaching subsidiaries of Chinese AI companies in places such as Malaysia, the report notes. Sources estimated the volume at hundreds of thousands of chips. Still, the new guidance does not require data centers to stop using the chips or cut off servicing for advanced computing items such as servers, Reuters adds.

Washington had previously left the door open to potential AI chip sales to Chinese entities by not enforcing the Biden administration’s “AI Diffusion Rule” in May 2025, as noted by Investing.com.

Notably, former State Department official Chris McGuire said the guidance still leaves an opening. According to Reuters, McGuire said it does not require TSMC and other foundries to conduct additional checks on whether the high-end AI chips they manufacture could ultimately be routed to Chinese-linked companies acting as intermediaries. He said the issue remains unresolved.

New Guidance Raises Compliance Burden, but Near-Term Impact Seen Limited

Regarding the impact of the new guidance, the burden on distributors and cloud resellers is likely to increase, according to Digital Today. Exporters will need to look beyond direct customers and verify each buyer’s ultimate parent company. Still, Digital Today notes that some observers expect the near-term earnings impact to be limited. The guidance appears more focused on clarifying enforcement standards than imposing a broad new ban. Lower-tier chips supplied under existing licenses may continue to be sold under current terms, while products already shipped will remain with customers.

AI chip rerouting has also come under scrutiny in a recent Taiwan case, where prosecutors are investigating suspected NVIDIA chip smuggling involving third-country transit. According to Bloomberg, Taiwan prosecutors suspect three individuals smuggled at least one shipment of NVIDIA AI chips to China by first exporting them to Japan. Authorities have detained the three defendants and seized about 50 servers allegedly tied to fraudulent export documents, though at least one shipment had already cleared Taiwan customs.

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(Photo credit: NVIDIA)